Monday, April 16, 2007

DoubleClick on Google

It is being widely reported that Google is acquiring DoubleClick for $3.1B.

Reaction to this announcement has been interesting. Microsoft's Don Dodge says, "DoubleClick ... two years ago ... [was] valued at less than $1 billion ... They later sold off two divisions for $525 million. Yesterday Google paid $3.1 billion for what remained of DoubleClick."

Henry Blodget writes that this is "a big management challenge, a significant price tag, [and] an admission on the largest scale to date that it sometimes makes sense to buy instead of build."

Google VP Susan Wojcicki claims this is "the next step in Google advertising." Susan's words sounded unintentionally ominous, however, after I read Philipp Lenssen highlights of DoubleClick's history which includes a number of issues with privacy violations.

Paul Kedrosky sees this as "a brazen attempt to cut off Microsoft's future air supply" and "a strategic and offensive buy." I disagree with Paul here. I have a hard time seeing this as anything but a defensive move. Microsoft is drawing little air from advertising revenue and will not be for some time. I think it is clear that Google is trying to ward off Microsoft's attempts to pinch off its advertising revenue air supply, not visa-versa.

Nathan Weinberg, normally a huge fan of all things Google, slams the acquisition in two posts ([1][2]), calling it "crazy" and "arrogant". Ionut Alex Chitu notes a passage from John Battelle's book "The Search" on Google's decision to build its own advertising engine back in 1999: "DoubleClick's ads were often gaudy and irrelevant. They represented everything Page and Brin felt was wrong with the Internet."

As for me, I am not sure what to think. On the one hand, this acqusition does bring in some additional revenue, acquires some important relationships with existing DoubleClick advertisers, and helps defend Google's advertising market share, its air supply.

On the other hand, this is a very expensive acquisition of a large company with a history of privacy issues. DoubleClick appears to be culturally different than Google, posing an integration challenge. Put simply, like YouTube, DoubleClick is not Googly. I foresee problems down the road as these two beasts mash together to try to bear useful offspring.

Banner advertising has never been extremely effective, either for advertisers or for publishers. The growth in display advertising over the last 5 years is nothing compared to search/contextual advertising.

So Google is not buying DoubleClick to get a piece of that business. They did so in order to:— change their creative— reach new publishers— broaden their data stream

(I expand on those reasons at my blog.)

This all about profiling and monetizing those profiles with relevant advertising. They know much more about each one of us than you think. The next obvious step for Google was display advertising, and if they can build a long-tail of display advertisers like they did with keyword/text advertisers, while leveraging their profiling data and auction bidding system, they can make a ton more money for themselves and publishers.

Hi, MB. Good point on the potential of personalized advertising. It is true that I have writing about personalized advertising quite a bit in the past (e.g. [1][2][3][4][5][6][7][8]).

I suppose it is possible that interest in DoubleClick's data (clicks on ads by specific users) and DoubleClick's targeting technology could have been a factor in this deal, but I doubt it was a major one given that DoubleClick's advertising revenue is so much smaller than Google's and that Google has its own behavioral targeting efforts.

I think this DoubleClick acquisition is more about strategic value than data or technology. It appears to be mostly a defensive move, an attempt to slow Microsoft down.